MRV Engenharia e Participacoes SA

BOVESPA:MRVE3

Earnings Call Transcript 2020-Q4

[Rafael Nazareth Menin Teixeira de Souza, executive]

[Interpreted]

We are very happy and optimist. We closed last year, it was a very hard year unfortunately, there were the health problems that continue to afflict the Brazilian society. But still, we had record sales in the year. We grew almost 40% in sales compared to 2019, closing with BRL 8.7 billion in sales, a very good number that should be celebrated by the company.

But more important than talking about the past is talking about the future. For some time now, we have been preparing and creating a unique infrastructure in the sector. MSA operates in 162 Brazilian cities and also several cities in the U.S. market. We invested lots of money in recent years in technology processes and most of all, in our people. Today, we have a very qualified team that takes care of such diverse operation as MRVs. Then some years ago, we started a very important project, which is to expand our portfolio, diversifying our operations.

So today, in addition to our core product, Director to Minha Casa Minha Vida. We have the Sensia line that is going to work at the severance patent workers fund. And we have Luggo, our rental business, Urba our company that is focused on allotments and finally, AHS that is a sister company in Luggo that does the same thing, but in the U.S.

So all those portfolio and geographic footprint will enable us to take an even greater leap. In our release, we have a target of getting to 80,000 units by 2025. A number that has never been reached before by any developer, except for 2 companies that operate in China. So we will indeed be a world case. And this 80,000 units will translate in approximately BRL 18 billion in potential sales value, a very good number.

So in the context of expanding portfolio and diversing geographically, operating in different market niches. I would like to highlight in our target for 2025, approximately 1/3 of company revenues will come from AHS in the United States, which is very good. A company that has a different economic behavior, a different cycle, which will bring us very unique resilience.

And also, another 1/3 of the potential sales value will come from investors and not individuals. MRV traditionally sells apartments to our clients. But with AHS and Luggo's developing, more than 1/3 will come from the sale of the portfolio of these products to invest in funds in the U.S. and Brazil, which is very unique in the sector.

And talking about AHS, another important movement that AHS entered in 2 more states, Georgia and Texas more recently, which is a very pro business state. The population is growing, people are migrating from north to south in the U.S. The tax load is very friendly in foreign individuals. It is a very pleasant climate. So these 3 states, Texas, Florida and Georgia will have their population growing in next years.

Texas alone, the most important state has $1.5 trillion in GDP, the size of Brazil, one state alone. So we are very optimistic and sure that AHS operation will be quite representative in our portfolio. And to close AHS, today we have 6 developments that are ready to being sold. We want to complete the sales in the next months. These are projects with PSV of $250 million with profitability close to 30% gross margin. So beautiful profitability. And because we work in Miami, Dallas and Houston, we are amongst -- in 4 of the 10 largest metropolitan regions in the U.S.

Luggo is similar to AHS, a very modern company. It is very easy to rent an apartment. You can do it on the app in 5 minutes, and then you have all services, internet, cable TV, shared cars, cleaning, markets, bakery, laundry. So it's a very nice business, but most important of all, this concept of maternity is quite democratic. The average rental is BRL 1,400 a month with that fits family income of BRL 4,000, BRL 5,000, BRL 6,000. So we deliver a lot with very democratic business. And so much so that the vacancy is almost 0. Society demand has been very, very good.

And finally, were our allotment company. What is happening with allotments seeking for houses. Lots of people wanted those products, whatever we launch in urban is selling like water and it is a company that we do believe is going to grow a lot and it's going to be very important for the MRV portfolio as a whole.

People want homes that have a yard that have more space. And Urba has urban quality with democratic prices. So the mindset is very similar to AHS, Luggo and MRV, which is to deliver a very good product, but at the democratic price. So in our material, what we expect for Urba, and this is on our website is 15,000 lots a year, and we can even go beyond that. Well, for introduction, this is it, then I'm going to turn to Fischer, then we are going to go to the Q&A.

[Eduardo de Souza, executive]

[Interpreted]

Good morning, everyone, and have a good day. Hello, thank you, everyone. Thank you, Rafa. I could just refer to something that Rafael said that is very important. We have a guide to diversify our portfolio to expand our housing platform to go to what we call a multi-funding multi-client platform. So our strategy in the medium-term will create a company that can capture all potential in the Brazilian real estate market as well as the American market, as Rafael mentioned.

Along this line, I would like to touch an important point. Looking at some analysis that were carried out. Our new businesses are being placed as one-offs that is nonrecurrent. What 2020 showed us in MRV is that this is the start of recurrence in our businesses and in our new areas in 2020. We really showed the strength, especially when AHS started to support our business, enabling our growth. And this is very important.

We have a portfolio of products and companies now that will enable MRV to grow in different businesses with different risks and different funding. This is strategic for us. This is our guide and this is something that you all have to have in mind, but it will indeed change the company level in terms of risk, insights and potential.

And along this line of products, Rafael mentioned quite briefly, but we had disclosed our new mid-level Brent with Sensia we did that soon after the [indiscernible] day but in February. But typically, on the 24th of February, we had the launch of our first Sensia development in Campinas. In 5 days, we had the development close. And remember, the process of transferred to banks is just like MRV. At the blueprint during the sale, our new product with this kind of transfer is a landmark to us. It shows that we are on the right path and very soon, we are going to see recurrence in Sensia brands in our business, in our platform.

Another point I would like to highlight is that much has been said in recent months about the increase in raw material costs, increase and lack. What do we see in MRV? Indeed in the second half of last year, there was some delay in the delivery of materials. As prices going up, especially on price -- on items that are important to us. That does not have an immediate effect on our whole portfolio, you have developments ongoing at different stages, but we did see that along the second half of 2020.

So what did we do? Well, with regards to possible lacks, we started to piling of material to slurring material does have an effect on cash generation, which is not optimal, but we did that to protect our operations and to mitigate increase of cost. So we increased the inventory levels.

What we see in the beginning of 2021 is a sign that this is going down. Increases are no longer happening, freight costs, which are good indicators to us, it starts to be cheaper, even with diesel costs going up. So this is an excellent indicator that we monitor on the day-to-day. So it is a positive sign. And we think this is going to dissipate along the coming months.

So how did we address prices going up? Well, twofold. First, we continue with our processes to gain efficiency and productivity. They are showing results. So we will more than be able to cushion the increases that happened. And second, we were able to transfer this increase of prices to our product mix and because there was an explosion of demand, we are generating gains as never before in the company. And with that, we are able to transfer some of these costs.

So looking forward to 2021, our strategy to recover gross margins has not changed. Of course, there was a slight impact in the end of the year, but it's not going to be different for '21 as I mentioned before, and we will continue to grow our gross margin in the year. So now I'm going to turn to [ Beka ] that also have some comments to make.

[Bianca Batista Martins, executive]

[Interpreted]

Hello, everyone. Thanks, Eduardo. I'd like to go to some financial results. I would like to say that we had growth of 10% compared to 2020 in -- I would like to talk about gross margin. We had a slight recovery compared to the previous quarter with [ 24.8 ] and going down, I would like to talk about our expenses.

So first, there were some analysis comparing the year 2019 without a 2020 with AHS. So you have a bit of a distorted. So when you get SG&A overall, you that there is a difference in 2020 compared to 2019. And if you think of contracted sales, we have a reduction of more than 200 bps year-on-year, showing a dilution of expenses on grow along the years as we start growing our production volume. And our subsidiaries showed better results. With that, we had an improvement of BRL 25 million in the year.

The financial results of BRL 40 million below compared to 2019 and the main reasons, first, AHS introduction in 2020. This is a company that is more leveraged because it is growing. Also, a decrease in inventory and also a drop of financial release because of the marking of bonds to market that haven't completely recovered. But it's the bottom line, we had BRL 550 million this year as a whole.

With that, we have the investments of AHS, and more and more AHS and will contribute to our results in the first quarter of '21, we are going to see new sales of AHS development and in the second half of the year to be Luggos. Cash generation in the release, you have the cash generation per business line, BRL 520 million in MRV, Urba, Luggo and AHS are building cash in a natural process of growth. In terms of capital allocation, you have the numbers that you can see on our release. Well, this is what I had to show you, and now we are going to go to our Q&A session.

[Operator]

[Operator Instructions] We have one question from Pedro Hajnal from Crédit Suisse.

[Pedro Hajnal, analyst]

[Interpreted]

I have 2 questions. First, in terms of SG&A, there was a slight increase in 2020, which was expected because of the leveraging of your subsidiary operations. I would like to know what levels are you are considering for the year, giving the slight increase that you had?

And the second question, I think you have already approached the gross margin recovery. So do you think that by the end of the year, we are going to have a gross margin close to 30%? Do you think it will take a bit longer? And still about costs if you give us a bit more color with regards to materials. What has had the highest rate? And also in terms of labor. Well, these are my questions.

[Ricardo Paixão, executive]

[Interpreted]

This is Ricardo. Well, your audio was not optimum. Could you repeat the first question, please?

[Pedro Hajnal, analyst]

[Interpreted]

Certainly. The first question is with regard to your SG&A. You had a slight increase in 2020, what do you expect for the coming months?

[Ricardo Paixão, executive]

[Interpreted]

Okay. G&A, we did see an increase because of the incorporation of AHS, and we see G&A about flat compared to the fourth quarter 2020 in this year. For the future, we are going to have a dilution of this general and administrative expenses. And what we see is that some of the business lines are still starting their operation. So it's just natural that we have a team that is prepared for a larger volume of operations that we are delivering. That's particularly true in AHS, Urba and Luggo. Gross margins, you are right. Eduardo did explain that well in terms of gross margin. This is a movement that we are expecting.

And we had -- we expected an improvement in the second half of last year, which did not happen because we removed the discounts in the beginning of the pandemic, but that was partially offset by the increase of costs and inputs, as I mentioned before. I'm not going to repeat what we said in terms of margin recoveries, but we should see and increasing margins, we are expecting the gross margin to recover in the first quarter of '21. It's going to be a bit more flat.

This is basically the [indiscernible] of gross margin. We don't believe this is going to go down but in the second half, we will continue on track to have a more natural normal gross margin for the company, 31, 32. We're probably not getting there this year, but we are going to see the movement towards that in the second half of the year. Materials and inputs, copper at steel and PVC were the main ones. We have taken important measures to somehow offset these costs.

In steel, for instance, we have a technology that was developed for plots for development up to 5 floors that do not require the screen sheet. We can use fiber glass to keep the concrete in place. And with that, we reduced steel consumption. And we can also use dry walls on in internal apartments, especially for a Catania.

So we are taking the right measures to offset effect and if we, on the one hand, we have had the increase of some inputs. On the other hand, we are decreasing cost in services and et cetera. Labor, zero pressure. We are not seeing any effect, unemployment is very high. Of course, that we see that the people are concerned about that in the São Paulo market, but this is not our reality for the whole of Brazil. I hope I have answered your question.

[Operator]

[Interpreted]

Our next question comes from Elvis Credendio from BTG Pactual.

[Elvis Credendio, analyst]

[Interpreted]

Fischer, Kaka. I have 2 questions. First, the competition in the Casa Verde e Amarela and especially thinking of the increase of materials in recent months. How do you see the smaller competitors in the segment vis-à-vis this increase in costs? Do you think they are going to be more affected and consequently, you could even increase your market share faster?

My second question is about AHS. What do you see in terms of cap rates from now on? We see people talking about an increase in costs in the U.S. Do you have any kind of concern with regard to the cap rates for the next months?

[Eduardo de Souza, executive]

[Interpreted]

This is Fischer. I'm going to answer your first question, and then Kaka is going to talk about AHS. Competition. What we saw last year is that small and medium-sized players decreased their operations hugely in the beginning of the pandemic more towards the end of 2020, they did pick up a bit, but we have already gained market share in several cities. Because once you consolidate market share, it's hard for you to lose.

And very heavy competition in São Paulo, particularly the metropolitan area. Other than that, the scenario has not gone back to pre-pandemic times. And because of the increase of costs that larger companies are slightly more protected against, I think, small, medium players are going to have more difficulties to browse the environment in the first, second half of '21. So I think we have enhanced an opportunity to continue consolidating and increasing market shares in the cities in which we operate. Kaka?

[Rafael Nazareth Menin Teixeira de Souza, executive]

[Interpreted]

Well, with regard to AHS, what have we seen? Well, basically, transactions basically at the level that we had estimated. The last one, even better, we had expected a yield cost of [ 7 ], and we saw room for us to grow that with gains of productivities and a better production process in the market. With that, we have a 28% to 30% gross margin per project. And remember, AHS is not -- is the commercial player here. So the net margin is very close to the gross margin differently from a traditional business.

[Operator]

[Interpreted]

Our next question comes from Nicole Inui from Bank of America.

[Nicole Inui, analyst]

[Interpreted]

I would like to turn to AHS. I have some questions there. First, you are starting going to different states, you're in Texas now. Could you talk about the challenges of starting operations in a new state? How is it going on?

And the second question is still about AHS and the American market. I think that in the U.S., you're also having an increase in cost. How does this impact your business in terms of yield? And what do you see from here on?

[Rafael Nazareth Menin Teixeira de Souza, executive]

[Interpreted]

This is Rafael speaking. Okay. New states and challenges. Well, we naturally do have challenges. But it's important to point out that this is something that MRV has been doing for 30 years. We started our geographic dispersion in '94. Years ago. And this preparation of infrastructure in terms of teams, processes, systems is very mature. We at MRV, have huge managerial capacity to manage a whole lot of disperse development in a large geographic footprint. And this know-how of the past 27 years is going to be incorporated by AHS.

Now how do we see the American market? It is a market that has less entry barriers. In Texas, Texas is a very pro business state. The law, the government is very efficient and that makes our process easier. Also in the U.S., different from Brazil, there is a very standardized building process. The way we are building Texas is just like how we're built in Miami, and we are growing our team.

We sent good MRV executives to AHS we have capacity to put together teams. There were lots of people that wanted to grow, and we saw a possibility for them to grow their career in AHS. Many executives are taking the step, they are highly involved with the company future. They are highly qualified. So we are quite confident. Of course, nothing is easy, but we are quite confident that we can do it.

The MRV produces 50 units -- 50,000 units a year, AHS is at 1,000. We want to get to 5,000 in 4 or 5 years' time. So we have time to mature teams and processes, but always looking to the inside of MRV because there are many lessons learned in 27 years of geographic dispersion. And remember that we are adjusting 4 metropolitan areas. Great Miami, Great Atlanta, Houston and Texas.

We are looking to Austin. We are taking a look at there, but very close to Dallas, the American logistics works very well. So geographic dispersion is going to be much smaller than Brazil, 15, 20 towns in metropolitan areas. So we are aware of the challenge, but we are investing not to have any surprises in terms of performance. Any call in terms of costs, indeed, in the last 3 years, the sector had some inflation. It's going on. Land is a bit more expensive, labor and materials as well.

So it is slightly above the American inflation rate, but you have also production industrialization processes in AHS that offsets inflation rates. As you heard, Kaka said the yield cost was estimated at 7%, and we think that we can go beyond that.

Even knowing that we can have still a bit of pressure of costs. You have the package of $1.9 million. That will certainly bring short-term inflation. But you know the exit cap and yield cost will enable us to deliver a gross margin close to 30%, okay?

[Operator]

[Interpreted]

The next question comes from Bruno Mendonca from Badesco.

[Bruno Mendonca, analyst]

[Interpreted]

The question is about the plan for 80,000 units. I take a look at your plan for the state, it's also very ambitious. So I would like for you to say what do you consider in terms of capital structure for the future? And how you're going to get there?

You have a PSV amount that is growing. Pro-soluto is also growing faster than revenues and budget. So in the pyramid of use of resources, you also have a portion of equity to grow at Luggo and Urba. So how do you see the evolution of your capital structure and the use of your networks and how you're going to leverage the SPSV over your net equity. I don't know if the question is confusing. But I would like to know -- to have an idea -- a snapshot of MRV Capital structure for the future?

[Ricardo Paixão, executive]

[Interpreted]

Indeed, it's a challenge. It's huge growth, going from BRL 8 billion in sales to BRL 18 billion sales, but we are very much prepared to get there. In terms of capital structure, the 3 subsidiaries, Luggo, Urba, and AHS will demand capital, given that their growth is going to be exponential for the next 5 years. They are doubling size every year.

So what happens? MRV has a stable operation. We are going to have 40,000 or so units a year, we grew a bit of the portion of SBPE. Last year, we were at 50,000. We want to get to 60,000 units. So you're talking about growth of about 20% -- 15% to 20% in the segment.

And the segment will happen in 2, 3 years, and it does not demand capital. It just generates cash because we have already the land bank for MRV for Sensia. Sensia is going on and Minha Casa Minha Vida, we have a volume that's even a bit larger than necessary. And Sensia is a bit less so one offsets the other. So the Brazilian subsidiary is a cash cow. It generates cash and irrigate the other subsidiaries.

Now what can happen? We know that the capital market in Brazil is increasingly mature. I hope that we can address our fixed reform for the interest rates not to go up so much. But eventually, because of that, we did have a first round with Urba, but at the right time, without hurry at the right price, we can have a follow-on in Urba.

Luggo, when it gets to 6,000, 7,000, 8,000 units we can also have a round of capital there. This is a very modern company, very different, and it may happen. And AHS is the same rational. It will double size every year in the most mature capital market. So with the right valuation, we might have some capital market move.

And the holding, we don't want to have movements in the holding other than diluting the main shareholders and adding capital to our subsidiaries. You have to pay attention to costs, to multiples and keep our discipline and conservatism in terms of leverage. So you always see a holding with little leverage.

This is our DNA and if any subsidiary has room to grow faster than budget, we can access some kind of capital market. In terms of pro-soluto, it is growing in pace with sales. And we are even more restricted, if you compare the beginning of 2020 to the beginning of '21 all indicators of pro-soluto payment installments, maximum tolerated risks, this is all better than before.

So the average time for receive and the pro-soluto is going down, and this is probably going to continue for the coming quarters.

[Bruno Mendonca, analyst]

[Interpreted]

And are you considering any different structure in your portfolio?

[Ricardo Paixão, executive]

[Interpreted]

Bruno, we have 2 large volumes of capital that are [ pulled ] here. First is pro-soluto. We have BRL 2 billion plus in our portfolio, BRL 1 billion-plus post key and we have the land bank that has already been paid more than BRL 1 billion. What Kaka is doing is trying to study the alternatives in the market. There are some very interesting things going on for us to have a slightly lighter balance sheet. So we might have some move with this regard, inland and pro-soluto, but I cannot give you any details right now.

[Operator]

[Interpreted]

Our next question comes from Thais Alonso from Citibank.

[Thais Alonso, analyst]

[Interpreted]

I'd like you to comment about Urba. So if you to give us a bit more color. We had several competitors that tried to go into the segment and were affected. What is ABS difference other than your geographic footprint in the market? And second question, the current interest rate, does it change Luggo dynamics we end the interest rate increase as they affect the market?

[Ricardo Paixão, executive]

[Interpreted]

This is Ricardo speaking. First, with Urba. Several companies that tried to become national were affected. But we already have the geographic footprint. And we also have high operational quality. So Urba is serving this wave.

When we joke around making analogies, MRV, started with a very bumpy roads, but Urba has already [indiscernible] road. So it's going to be much easier for Urba to expand than it was for MRV. The growth plan talks about growing in all the cities where energy is already present, Midwest, North of Parana, São Paulo state, inland. So I don't think this is a point that concern.

Another thing that is relevant to mention is that Urba has 1,000 lots of land. The plan for this year is up to 3,000. Everything is ready for us to start with our launches, and we are talking about large projects. We want to go from BRL 10,000 to BRL 15,000 a year. And when you get an average size of profit of 750 to 1,000 units, you are talking about 15 to 20 projects. And compared to the BRL 240 million of MRV, I don't think it is a challenge.

What was the second point, I'm sorry?

[Thais Alonso, analyst]

[Interpreted]

The increase of interest rates because when we're seeing there rates going on, clients have a problem to pay. Do you have any alternative to fund subjects? Are you going to use part of the cash that MRV is generating?

[Ricardo Paixão, executive]

[Interpreted]

Okay. What we see is that we have developed -- we have 2 important partnerships for the funding of this project in Luggo. So today, we have a corporate plan, so to speak, we have 3 projects in this plan with partners of the company. So the cost of capital, the debt business, so to speak, for construction is CDI plus 2.4, 2.5. So it is very well current controlled in terms of capital needs for us to build Luggo projects. And the other point is that today, we are at an interest rate of 2%. And no one expects this to be kept, it's probably going to go up.

We are going to have a 6% yield net of taxes in Luggo. So if you're talking about the selic close to 6%, the business is still very appealing. But if everything goes wrong and selic rates just skyrocket, then we have to think of alternatives. And that's why all the developments that we buy for Luggo, we look closely into not to have any problems.

[Thais Alonso, analyst]

[Interpreted]

Will you allow us to be asking one more question?

[Ricardo Paixão, executive]

[Interpreted]

Certainly.

[Thais Alonso, analyst]

[Interpreted]

In your line of financial results, financial expenses grew by almost 50%. And but when you take a look at our indebtedness rate, it is flat. How can you do that?

[Ricardo Paixão, executive]

[Interpreted]

Well, Thais, what you're comparing is that in 2019, we didn't have the consolidated numbers of AHS. The difference is because of AHS.

[Operator]

[Interpreted]

Our next question comes from Marcelo Motta from Jpmorgan.

[Marcelo Motta, analyst]

[Interpreted]

I have 2 quick questions. The first about working capital. Fischer mentioned that one of the initiatives to offset the pressure on costs is to advance purchases, increasing the working capital. I would like to know if you're going to decrease this line along the year or if you are going to work at a higher level of inventory?

And the second question about the first quarter, you talked about Sensia selling 20% in 5 days -- in 1 week. I would like to understand the speed of sales other segments because of COVID lockdowns and if this has impacted the pace that you had in the fourth quarter?

[Eduardo de Souza, executive]

[Interpreted]

This is Fischer speaking. Well, working capital. Indeed, what we saw in the last half of last year, was a need to have higher inventory levels. And that, in a way, was the same for the first quarter. But this is getting a lot better so I don't think it will affect the numbers of the year because you have 2 things going on, a delay of materials and increasing price.

Delay is settled. So we are no longer having delays. Costs, so it is what I said in the beginning. We have less pressure of increases this year compared to last year. So we do not see the need of really having everything in-house because the situation seems to be settled. So it won't affect our plan and the projection of cash generation for 2021.

First quarter is doing well. As I said, the explosion of demand that we saw after the second, third months of the pandemic, are still high in '21. In January, you have the record of leads generated in the company. So demand continues very strong. And one thing that I said yesterday is that the difference of this lockdown, that will start tomorrow in São Paulo, compared to last year is that this time, we are fully adapted to surfing this environment remote home market so -- last year. That is on our clients and prospects are already more experienced and confident in working in the virtual environment. So I'm much more confident.

First, because I think it's going to be a lot shorter than last year. And second, because we are used to work in the scenario. We and the whole of the market. So it's not a concern. It might be a concern if it takes too long, but it's not what we see right now. So as a whole, I hope I have answered your question.

[Operator]

[Interpreted]

Our next question comes from Ygor Altero from Santander.

[Ygor Altero, analyst]

[Interpreted]

So I have one question. We have seen cash with real estate credit being offered in different channels and getting to levels that are much more appealing to end consumers. What is the impact of this on your sales and on pro-soluto?

[Eduardo de Souza, executive]

[Interpreted]

Ygor, this is Fischer once again. Well, let's go back. In 2020, Caixa has very important work. And when the pandemic started, it was quite proactive. It worked with the waiting period of payments. So it was an important player in the scenario to us. Caixa for some time now, which is very good, has been a lot more judicious in granting credit.

And this is not something that started now. In 2019, this was already given, which is good to us because if you look at the long term, if you have the largest player in the market more stable. This is very good. So the scenario that we have in the company now is the same scenario in terms of granting of credit and pro-soluto that we had in 2019 and 2020. There was no change in Caixa's behavior during the pandemic, more specifically for 2021. I think I answered your question, but I'm not sure.

[Ygor Altero, analyst]

[Interpreted]

Yes. Just there to know, yes, if you consider that this would be a problem or not. And with regards to savings accounts, well, this is fantastic. We have to have in mind that Caixa is the main player in the Brazilian real estate market. So with this new line that is connected to the savings account, it brings much better possibilities for the sector. Caixa 3 has an interest rate of 8%. The savings account is much lower than that. And that's very good for us, including for our strategy to diverse spending. So I think that the recent moves of Caixa were all very good to us.

[Operator]

[Interpreted]

Our next question comes from [indiscernible] from Itaú BB.

[Unknown Analyst]

[Interpreted]

First of all, I have 2 questions. The first about AHS. What is the timing for divesting this year and also Luggo. You have no sales in 2020. Should we expect something for '21?

[Ricardo Paixão, executive]

[Interpreted]

Okay [indiscernible]. This is Ricardo speaking, straight to the point. AHS, we are going to have something in the second quarter -- second quarter and then third quarter, about half and half. As for Luggo, we are probably going to have something closer to the fourth quarter.

[Operator]

[Interpreted]

[Operator Instructions] We are now closing the Q&A session. For the final remarks, I will turn to Eduardo Fischer, the company's President.

[Eduardo de Souza, executive]

[Interpreted]

Well, very briefly. First, I would like to thank you all for taking part in our conference call it was one of the best conference call recently because we were able to cover all our progression, all our product lines and all our strategy. So very good.

Just one point that we left out of the discussion. We said that MRV is a pioneer in using the [indiscernible] of the ESG operations in Brazil. As a group, we had investments of BRL 30 million in the pandemic, we continue to take part of initiatives to help society. So this is a company that is in the [indiscernible] of ESG operations.

And we just had joined this target, which is a global initiative to decrease the world's temperature levels by 2 levels up to 2050. Only 18 companies in Brazil are part of this initiative, it is very ambitious, it affects all our production line. And it is something that we believe in.

It is part of our purpose and the power of engagement inside the company is skewed. The people are engaged and it makes our life easier in terms of people management and even business management. So thank you very much. It was a very positive, very thorough call and see you next time. Have a good day.

[Operator]

[Interpreted]

MRV's conference call is now closed. We thank you very much for Attending you a very good day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]